How To: Pay Employees

Hiring

Pay issues come into play even before you hire an employee. How will the employee be classified? What is the employee's rate of pay?

Consider these first steps.

1. Correctly Classify Employees

How your employees are paid will depend on whether they are classified as
exempt or nonexempt. Use the
Exempt/Nonexempt Wizard to assist you with this determination. Determine also if the employee is full time, part time, or temporary.

2. Determine Pay Rate

Decide on a pay rate for each employee (hourly, daily, weekly, piece rate or commission). Remember that in addition to the state
minimum wage, local ordinances may also set a minimum wage. Check
local ordinances in locations where you conduct business or have employees to determine whether a local, minimum wage rate applies.​

If you have classified the position as exempt, double-check to make sure the employee meets the minimum salary requirements for the particular
exemption.

Ensure that you comply with
California's Fair Pay Act, which prohibits you from paying any of your employees an amount less than employees of the opposite sex or of different races or ethnicities for "substantially similar work."

3. Define Employees' Schedules

Establish and document the employees' work schedule. Review the Wage Order(s) that applies to the employees. Certain wage orders set maximum
hours of work or mandatory days off.

Clearly
define the schedule's "workdays" and "workweeks" in the documentation. The definition you use will affect your obligations to pay overtime to your employees.

4. Provide Required Wage and Employment Notice

Nonexempt employees must be provided with specific
wage information at the time of hire. The Labor Commissioner has designed a template that complies with the specific requirements, and includes information regarding rate of pay, paydays, mandatory paid sick leave and mandatory employer information.

Use the
Wage and Employment Notice to Employees (Labor Code section 2810.5) to comply with this law.

You must also notify employees, in writing, of any changes to wage information, within seven calendar days after the time a change was made, except in certain specific circumstances.

Post Hire

Once you have hired employees, you will need to take certain steps to make sure you meet the legal requirements surrounding pay.

1. Calculate Pay

Calculate the amount the employee is to be paid, adding up all
wages earned (regular and overtime) and including all other compensation due (such as tips, commissions, or, in the case of a final paycheck, accrued vacation or PTO). This results in the gross amount you owe the employee.

California law creates daily and weekly
overtime requirements for nonexempt employees in the private sector.
Calculating overtime pay can be tricky. Basic steps include: identifying the hours that you must pay on an overtime basis; deciding what overtime rate must be applied; and determining the regular rate to which overtime must be applied. Use the
Overtime Calculation Worksheet to assist you.

If you have
piece rate employees, make certain you comply with the specific pay rules that apply to these types of workers.

2. Make Deductions

Make mandatory and permitted
deductions from the gross amount of an employee's compensation for taxes, benefits, garnishments, etc.; this results in the net amount owed.

3. Timely Payment

You must pay the correct wages to your employees, and you must pay them
on time and in the manner required by law. Establish a pay schedule that complies with the law. Different rules apply for paying employees on regular paydays and for
final pay when employees resign, retire, are laid off or are terminated.

4. Form of Payment

Create a
paycheck for the net amount and deliver it to the employee according to your established payday schedule. You can offer direct deposit, but you may not force employees to use it. When you pay employees, you must provide each ​employee an itemized
statement of wage deductions (commonly referred to as a
pay stub)​​​, in writing, that contains specific information.